Around the country last week, in crowded bars and living rooms lit by the glow of PCs displaying Internet stock-trading sites, Americans were profoundly unsettled by the volatile markets. But nowhere were folks as unnerved as at tech start-ups and throughout Silicon Valley, where the unprecedented boom has been built on amphetamine-fueled stock growth. After the market’s Friday free fall, dot-commies and financiers crammed the bars and restaurants of San Francisco, staring into their sake and trading horror stories about how much they had lost. “I have a hollow feeling in my stomach,” said one 23-year-old day trader, who requested that his name not be used. (He trades at work.) “I probably lost two hundred thousand last week. It’s nauseating, because I didn’t really want to work past 30.” “I’ve been getting beaten like a redheaded stepchild,” added Brian Driesse, 23, who also trades from his office at a tech company and lost $5,000 in the turmoil last week. “A lot of my friends won’t even look at their portfolios anymore. It’s blood red with losses every time we turn on the screen.”
The roiling market has already greatly complicated raising money for new companies, especially for unproven dot-coms only months after their incorporation. On the IPO runway, the start-ups are backing up like planes at San Francisco airport when the fog rolls in. Currently there are more than 300 companies waiting for the markets to calm so they can float initial public offerings–the largest backlog in history, according to Todd Carter, director of investment banking at Robertson Stephens. “Only exceptional companies will still be financed,” he says. Carter has noted one telling indicator of the blindingly fast shift in Valley sentiments. His phone has been ringing off the hook lately with calls from ex-employees who left for dot-coms–and now want to come back. “Even two weeks into what’s been a tough period, the reversal is quite apparent,” he says.
Bay Area techies are also recalibrating their view of a once prized currency: stock options. Until quite recently, the so-called funny money has been used not only to lure employees but to pay off landlords, hire overworked ad firms and line the pockets of friends and family. Rich Frank, a former Disney exec who heads the San Francisco-based Food.com, which lets Web users order restaurant deliveries, foresees a shocking development, a return to using good old-fashioned cash. “People are going to think twice about accepting jobs based on options. Many just haven’t been able to judge good stock from bad,” he says.
To get a more tranquil take on the market gyrations of last week, you had to look beyond Silicon Valley and Wall Street to the legions of mom-and-pop investors who have been plugging their savings into stocks. You’d think that they would be running panicked circles around their laptops, but many of these budding capitalists, for the moment, still seem to share the same calm philosophy–invest for the long term and look for buying opportunities when the market dips. Perhaps it’s common sense, or just hopeful optimism borne of their sudden financial vulnerability. Nevertheless, many individual investors say they are still ready to dive back into the market if a buying opportunity presents itself. “I don’t see anything in the global economy that would point to a severe downturn,” says John Crimmins, a stonemason from Stamford, Conn. “If you believe the market’s hit bottom–and I might by next week–it’s time to get back in.”
If that attitude prevails, individual investors could act as a stabilizing force–swooping in to look for bargains and stemming the market drop. That’s what James Morell, a 44-year-old lawyer in L.A., plans to do. “I think there’s some great buying opportunities, especially for the long-term investor. If you’re going to buy tech stocks, now is the time,” he says. Like many Americans, Morell is tracking the market obsessively, watching CNBC in the morning and at night, and checking his stocks on the Internet every hour at the office. Last Friday Morell picked up what he thought were bargain tech stocks, and he plans to do the same thing next week if the market doesn’t recover.
Meanwhile, other investors expressed a sentiment long absent from the realm of stock investing: humility. Tony Richards is a television-commercial producer who spends all day in bed trading stocks on his laptop when he isn’t working. In the days of constant stock-market gains, that was a particularly lucrative hobby. But the trading account he shares with a partner is down 30 percent this year, and Richards is beginning to realize that those double-digit gains weren’t the product of a brilliant financial mind. “We used to think we were investment geniuses, but we’ve learned we’re only as smart as the market is good,” he says.
There were also pockets of unseemly gloating, particularly near Silicon Valley. Take Vincent Alvos, a 38-year-old artist who lost his studio in the trendy Mission district last year, when the building was converted into cubicle-friendly office space for Internet companies. All of his friends and neighbors have also been squeezed out. “A crash might not be the worst thing,” he says. A prolonged market slump could cause some foreclosures, lower real-estate values and free up more space for the kinds of folks who used to flock to the Bay Area. That’s probably a pipe dream. But it’s more evidence that Valleyites, whether they admit it or not, are watching the market and holding their breath.
